Lately, free stuff has gotten a bad rap. It’s not uncommon to hear people say things like, “If you’re not paying, you’re the product not the customer.” It’s clever and thought provoking, but mostly intended as a put-down to the rubes getting their social media for free. (That includes me). But maybe it’s time to rehabilitate the idea of free stuff being a good thing, because nearly everything will be free soon.

I can still remember when, as a child, long-distance phone calls to family members on different continents was a special occasion for holidays and birthdays. Off-shoring information technology and outsourcing took off in the 1990s, in large part because telecommunications became so cheap as to be, for all practical purposes, free. Once phone calls and data communications were basically free, why not put developers and calls centers anywhere you can find great skills and low costs? Millions of people have been lifted out of poverty as a result.

Are phone calls really and truly free? They are not. Nor is bandwidth or CPU power, but in a very important sense, the marginal cost of additional bandwidth or compute power is really free. Once you have paid for a hard drive, for example, using space on it that was empty, really costs nothing at the margin. And in many cases, marginal costs have a much bigger impact on our behavior and our opportunities, than averages or up-front costs. 

GPS is another good example of the power of truly free stuff. Because using GPS is free of charge to everyone worldwide, entire industries have been built upon this technology – there are thought to be around 8 billion GPS-enabled devices worldwide driving an economic impact of over $250 billion annually.

GPS, like social media, is also a powerful illustration of the idea that a completely free is much better than nearly free. Nearly-free things still come with transaction costs and impose cognitive load on users to figure them out, as well as operational complexity in getting payment. Nearly every user of an online social media service could afford to pay $1 annually for the service, yet charging even that small amount would result in a huge reduction in users.

Blockchains exist because software, CPU cycles, bandwidth and storage have at the margin, become so cheap as to be effectively free. This sounds counterintuitive when people are spending hundreds of millions on mining rigs, but those are an extreme and specialized case. Blockchains simply could not have existed in the 1960s and 1970s when my mother was programming mainframes and my father was using them for nuclear physics. Computing time was expensive and you booked it in advance.

Blockchains are an enormous waste of computing power by any reasonable historical standard. Everyone checking everyone else’s work? Insane, unless what has become free is computing power while what is valuable is trustworthy transaction processing.

When the marginal cost of computing power and connectivity approach zero, a lot of amazing things start to happen: mobile maps with turn-by-turn directions, always-available encyclopedias and phone calls that turn into all-day video hang-outs with friends and family. In competitive markets, the price of products gradually converges with the marginal cost of making them, which means that companies must constantly add more value to stay ahead of what will soon be entirely free.  

See also: Paul Brody - Public Blockchains Are Set to Reshape Global Commerce

In the last year, the U.S. and quite a few other countries have embarked upon a whole new experiment in the real economy by going so far as to make money, in many respects, free. In addition to air-dropping (to borrow a blockchain term) trillions of dollars on the American public in the first COVID-19 stimulus package, interest rates remain at or near-zero in much of the world and central banks are directly injecting liquidity in the capital markets. This seems to have worked out very well.

The COVID-19 airdrop was our first-ever real experiment with what might be called trickle-up economics. It was a spectacular success. Some economists estimate that 18 million people in U.S. were saved from poverty by this package. Not everyone is on board, including many people in the blockchain community who believe free money will lead to high inflation. This did not happen in 2008 and it isn’t going to happen in 2020.

I believe scarcity should be for collectible kicks, not health care, food and education. I believe the greatest achievement blockchains have to offer to make even more things effectively free. Instead, I think the blockchain community should embrace the possibility of free capital as enthusiastically as it has embraced free software and air-drop payments.

Blockchains are about to make a lot of things that have historically been very expensive effectively free, and as a result they will transform how business and finance are done.  

Initial public offerings are a good example. IPOs are expensive, ranging from hundreds of thousands of dollars to hundreds of millions when the full cost of going to market is totaled. Initial coin offerings (ICOs) did much the same thing, for a fraction of the cost. Some of these costs were related to what might be politely described as regulatory arbitrage, but much of the savings also came from bypassing the very complex system that currently controls access to public markets.  

See also: Paul Brody - Why CBDCs Are Really Game-Changing

There are a few other things that blockchains are about to make much cheaper, perhaps closer to free than ever before. One of them is cross-enterprise system integration. Historically, tying together your enterprise systems with those of a supplier or partner is a project that runs into the hundreds of thousands of dollars. On a blockchain, using standardized smart contracts, it will be in the tens of dollars. This will make adding new suppliers or expanding globally a remarkably simple process.

Free capital is also transforming the world of blockchains. When the risk-free rate of return falls to zero, the attraction of taking risk suddenly goes up as investors pursue returns. Projects with more risk are now affordable, indeed, they are aggressively being pursued by investors. You can also use more capital in your projects. This is going to help speed along key technologies like optimistic rollups (a type of Ethereum scaling solution).  

Optimistic rollups also benefit from near-zero capital costs and cut blockchain transaction processing costs. They tie up your capital for a week or so while the different participants verify their end of the transaction, but the lower the cost of capital the bigger the benefit of using this technology. This allows for far more transactions at a much lower cost on the Ethereum blockchain. If capital was expensive, embracing this technology would be a tough choice.

If you want to think about the future of your business, imagine what it will be like if a critical part of your business was suddenly free. And don’t stop yourself from ever thinking there are some things that cannot or will not one day be entirely free. Free labor? How would you describe the work of online reviewers? Free air travel? Have you flown with some discount airlines? The fare is nearly free because the entire trip is basically a guided tour through a series of shopping malls. I have solar panels on the roof of my house. The marginal cost of electricity on a sunny day for me is zero. Free might just work out for everyone.

So go ahead, think about what your business will be like if everything is free (or very close to free). And think about what your company will be like if you are the first to offer your product for free.